BEIJING — For much of last year, top Chinese leader Xi Jinping campaigned fiercely to curb private capital and petty social inequalities. Regulators were tough on tech giants and wealthy celebrities. Beijing demanded that tycoons give back to society. And the Communist Party promised that a new era of “common prosperity” was on the horizon.
Now the Communist Party is putting its campaign on the back burner. By doing so, Beijing is tacitly acknowledging that Mr. Xi’s pursuit of wealth redistribution has made the private sector – a pillar of growth and job creation – jittery at a time when China’s economic prospects are increasingly clouded.
For Beijing, it is paramount this year to ensure that the economy is stable and growing, something that is all too important for Mr Xi. As he prepares for a third term five years later in the year, he has attempted to portray China as more prosperous, powerful and stable under his rule. Officials have shuffled in recent months to try to reverse a growth slowdown exacerbated by rising global oil prices, uncertainty over the war in Ukraine and lockdowns in China to stem a relentless spate of coronavirus cases.
“Community prosperity is still there, but the growth situation is quite challenging,” Huang Yiping, deputy dean of the influential National School of Development at Peking University, said in an interview. “The top priority really is to stabilize growth.”
The postponement is more of a tactical pullout than a mass halt to Mr Xi’s plans, who continues to describe the party as a long-term goal. Xi’s “common prosperity” campaign promises to narrow the country’s wide wealth gap and build a middle class that can boost domestic consumption and reduce the country’s reliance on debt-driven growth. It also serves political purposes: strengthening public support for Mr Xi’s leadership and defending China’s political system of centralized control as superior to the West.
Regulators had focused on what they called the “disorderly expansion of capital.” They tackled several companies that widened the gap between the haves and have-nots, including after-school tutoring, internet financial products, and online shopping. The measures have abruptly wiped out more than $1 trillion of the value of Chinese companies, forcing many companies to lay off employees or even file for bankruptcy. The campaign also terrified investors and entrepreneurs by asserting the party’s power over society and raising questions about the role of private companies in the country’s future.
The party leadership began to signal in December, when the economy was slowing, that the campaign was cooling. When the Politburo met that month to decide economic priorities for 2022, it did not use the phrase “common prosperity” in its official summary; instead, it emphasized “stability as the top priority”.
Beijing also tried to reassure international investors that it was still open for business, with Mr Xi himself stating that China welcomed all kinds of capital and that his campaign was not a push for egalitarianism.
“We will make the pie bigger first and then divide it well through reasonable institutional arrangements,” he said in a video address to business leaders at the World Economic Forum in Davos, Switzerland, in late January. “If a rising tide lifts all the boats, everyone will get their fair share of development.”
But investors at home and abroad are still shocked by Beijing’s crackdown on the private sector. Confidence in the Chinese economy dwindled as China imposed strict lockdowns to contain Covid-19 outbreaks and as the Russian invasion of Ukraine sent commodity prices soaring.
A strong sell-off in Shanghai shares in recent months — with the market falling 17 percent from mid-December to mid-March — sparked a rare intervention by Vice Premier Liu He, Mr Xi’s right-hand man on economic policy. .
mr. Liu promised Beijing would support the economy and limit the unpredictability that had shaken markets. Any new government policy that could have a significant effect on stock prices and other activities in the financial markets would first need to be approved by Mr. Liu, according to a statement from the official Xinhua news agency.
Mr Liu may have suggested that last year’s action was overzealous on the part of officials who acted too quickly to implement Mr Xi’s long-term goals, a point some economists have made.
“Under President Xi Jinping, the Chinese government system runs like a sports car — the accelerator and brake pedals work extra fast,” said Li Daokui, the director of the influential Center for China in the World Economy at Tsinghua University in Beijing. “If he wants to pursue a policy, even a long-term policy, the car accelerates immediately, and that may not be the intention.”
For example, Mr Li noted how officials rushed to respond to Mr Xi’s September 2020 announcement that China would cut its net carbon dioxide emissions to zero by 2060. Local governments restricted coal investment and production and placed restrictions on the use of fossil fuels without first seeking out alternative energy sources to keep the activity going. Those moves caused blackouts across the country last year and briefly shut down many factories in September as coal-fired power plants failed to generate enough electricity.
Mr Xi himself denounced any premature move to abandon coal last month, using a culinary analogy to describe how officials should lay the groundwork before making major changes.
The war between Russia and Ukraine and the world economy
“You can’t throw away the eating utensils in your hands until you have new ones in your hands — that’s not okay,” he said at a meeting of the Chinese Communist Party-controlled national legislature.
There are signs that Beijing is reversing its policies in other sectors to support the economy. Chinese Prime Minister Li Keqiang, for example, last Thursday called on officials to increase support for internet companies and help them add jobs.
The government tried to rein in the real estate market after Mr Xi said several years ago that “housing is for shelter, not speculation”. But those efforts have led to widespread slump — as well as defaults on major developers like Evergrande. This has damaged construction and related sectors, which make up as much as a quarter of the Chinese economy.
The government has eased strict restrictions on home buying in recent weeks. The city of Zhengzhou in central China has imposed a limit on the purchase of houses by people who already own one. Hengyang, a city in southern China, introduced a grant of nearly $5,000 to help engineers and students buy their first home. According to Zhuge Housing Search, an online real estate and data service in the country, more than 65 cities have switched to lower minimum down payments and mortgage interest rates, or otherwise relax policies.
Beijing has also postponed plans to expand a real estate tax trial, which has been a focus of the drive to redistribute wealth. The party has long debated introducing a national property tax, which economists say could help the government raise money without holding land auctions, and punish speculators who buy houses and leave them vacant.
In October, Mr Xi urged officials to “actively and steadily make progress on property tax legislation and reforms” as part of plans to “reasonably regulate excessive incomes.” But last month, the Treasury Department said conditions this year were unsuitable for expanding the real estate tax pilot plan, a ruling seen as an attempt to boost home buying.
The party’s overriding priority to achieve growth this year is also forcing it to set aside difficult changes that could address deep-seated problems with its economic model. China has long pushed to phase out its economy from its reliance on loans for infrastructure projects that have loaded the country with trillions of dollars in debt.
This year, China will continue its largest series of construction projects since the 2008 global financial crisis. At the time, the national government unleashed a wave of construction spending to keep the economic engine going, but local governments and state-owned companies borrowed heavily to fund the construction of highways, bridges and the high-speed rail line from Beijing to Shanghai.
China is building more high-speed lines this year, as well as eight national computer hubs and 10 data center clusters.
“This year will be a repeat of 2008 and 2009 in terms of promoting infrastructure,” predicted Mr. Li of Tsinghua.
Li You research contributed.